Health & Fitness
A Strong Recovery or a New Real Estate Bubble?
Bay Area real estate prices are soaring to new heights. Six of seven US metro areas with the fastest rising median list prices are in California, and 3 of those are right here in the Bay Area.
Bay Area real estate prices are soaring to new heights. According to Realtor.com, 6 of 7 US metro areas with the fastest rising median list prices are in California, and 3 of those are right here in the Bay Area.
Oakland recorded a 31 percent year-over-year increase, followed by San Jose (29 percent) and San Francisco (26 percent). While these are welcome statistics for many homeowners, the rapid rise in prices leads some to question whether we are entering a new real estate bubble.
The current price surge is fueled by a shortage of inventory: there are simply not enough homes available for sale while demand is supported by record low interest rates.
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The shortage of inventory is most severe in the single family home sector of the market as throughout California the majority of new construction permits are being issued for multi-family development projects. In general, California’s regulatory climate slows down the market’s response to the housing shortage, both for single family and multi-family construction projects.
In the meantime, income in Silicon Valley is not increasing as quickly as are housing prices. The home affordability index (median home price to the median family income ratio, with a lower index number indicating more affordable housing) is on the rise again.
Find out what's happening in Palo Altowith free, real-time updates from Patch.
After reaching 9.3 in 2006 in the Silicon Valley, the index dropped to 6.7 in the middle of the recession. Today Silicon Valley’s home affordability index stands at 7.9. Keep in mind that national average for the home affordability index in United States is only 2.8.
Being optimistic, we lean toward the point of view that current market conditions are only the first stage of a long-term real estate recovery rather than a market bubble. The combination of increased housing supply as well as a gradual increase in the interest rates will help control runaway prices and will produce more balanced market conditions.
Recovery or bubble, we will have more visibility into longer term market trends as the spring selling season moves forward.
Michael Talis is co-owner of TALIS Real Estate.
